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amp squanders dowry, caught playing footsie

  1. AMP squanders dowry, caught playing Footsie
    By Anthony Hughes
    January 30 2003




    GIO...not AMP's best purchase.


    Shortly after AMP listed in mid-1998, then chief executive George Trumbull had at least $7 billion in free reserves at his disposal to grow the company and justify the prevailing share price of more than $20 a share.

    Four and a half years on, not only has AMP depleted its entire war chest, it has been forced to raise several billion dollars more through a preference share issue and a dividend reinvestment plan to plug a gaping hole in its capital position.

    The evaporation of its capital base has occurred at the astonishing rate of more than $5 million a day, with much squandered on the failed GIO Australia acquisition, the overpriced purchase of NPI (the major source of the latest writedowns) and Henderson plus a series of less than successful international ventures.

    Unfortunately for shareholders, most of the problems only really became apparent in June last year, when investors were alerted to the UK capital problems that required AMP to transfer $1 billion in assets to the UK operations largely to prop up bonus payments to policyholders there.

    Since May last year, the shares have dropped from more than $19 to yesterday's close of $9.49, a fall in the group's market capitalisation of more than $10 billion.


    Yesterday's 12c rise to $9.49 broke a run of five days of price falls but was described by one analyst as "hardly a convincing turnaround".

    The rise was largely attributed to a small rise in the depressed London sharemarket, where the benchmark FTSE-100 index is down a third in the past 12 months.

    "It's very leveraged to the movements in the FTSE-100, which has suffered dramatically this year already," said Constellation Capital Management's managing director Doug Little.

    Most analysts were waiting until AMP's full-year results were out in February, showing a net loss of some $900 million, to determine whether it was worth buying the shares, Mr Little said.

    He said some investors, however, believed the FTSE was looking cheap because the UK market's implied dividend yield was now higher than UK bond yields.

    On some market strategists' numbers, the current level of the FTSE at 3490 priced in an implied 26 per cent fall in earnings per share across the member companies in the index, whereas broker forecasts were for earnings growth this year of 5 to 10 per cent.

    This disparity was probably the result of market factors, including the selldown by struggling UK life insurance companies of their equity holdings held in reserves, Mr Little said.

    While there has been some speculation about whether AMP will cut the interim dividend, AMP's new managing director Andrew Mohl said in September it would hire an investment bank to underwrite its dividend reinvestment plan for 100 per cent of the dividend in order to raise additional capital. This means shareholders who want cash rather than shares will be satisfied by the underwriter buying the unwanted shares.


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